By Matt Tracy
WASHINGTON (Reuters) – A group of banks led by Bank of America and Citigroup financed Apollo Global Management’s acquisition of auto parts supplier Tenneco without being able to sell some of the $5.4 billion in debt they provide , said sources close to the agreement. .
It showed the challenges banks face selling highly leveraged debt this quarter as bond yields soared in response to hawkish Fed policy and recession fears.
Since Nov. 3, banks have offered Tenneco’s debt at a steep discount — a $1.4 billion loan at 84 to 85 cents on the dollar and a $1 billion bond with an 8% coupon and an overall yield of 12%. The deadline for entries was earlier this week.
Bank of America and Citigroup declined to comment. Apollo did not respond to a request for comment.
There has been no official announcement on whether the debt sale has been put on hold or postponed, but a source familiar with the deal insisted marketing efforts were still ongoing.
The source did not say whether that would mean re-offering the debt to investors on even better terms.
The end result is that the banks involved are dipping into their own pockets to provide all of the debt for the Tenneco acquisition that closed on Thursday.
In September, banks were forced to hold $6.45 billion of the debt funding the takeover of software maker Citrix by Elliott Management and Vista Equity Partners, and a group of banks led by Morgan Stanley provided $12.7 billion. of their own money to billionaire Elon Musk for his takeover of Twitter.
“You’ve seen some of these very high-flying 2021 LBOs that were priced when the markets were extremely healthy,” said Sean O’Keefe, director of private investment firm Wasserstein & Co.
“But these are trading down 20 to 25 points from the new issue. So it’s almost like investors have seen this cycle happen that has them questioning the outlook for something like Tenneco,” he added.
(Reporting by Matt Tracy; Editing by Josie Kao)